Among the marquee events in the exchange traded funds industry last year were the debuts of several futures-based bitcoin ETFs.
Those launches are starts on the road to broader bitcoin and crypto options in the ETF space, and one of the advantages of bitcoin futures in the ETF wrapper is that the door is open to other funds that otherwise wouldn’t feature exposure to the digital asset to do just that.
For example, the WisdomTree Managed Futures Strategy (WTMF) recently added some bitcoin futures to its portfolio, following the lead of a stablemate, the WisdomTree Enhanced Commodity Strategy Fund (GCC), which was among the first commodities ETFs to include bitcoin futures.
“We believe that the addition of Bitcoin futures not only further distinguishes WTMF from other managed futures ETFs but provides investors with Bitcoin exposure in a risk-conscious manner,” says WisdomTree analyst Matthew Aydemir.
While WTMF will not directly invest in the largest digital token, the WisdomTree fund allocated 1.5% of its weight to bitcoin futures at the start of 2022. WTMF is actively managed, so that allocation could increase or decrease over time, but bitcoin in WTMF is a sensible idea.
“Ultimately, we believe that what makes Bitcoin attractive to investors is the potential for significant absolute returns,” adds Aydemir. “However, there are other features of Bitcoin that make it an attractive addition to our managed futures product. Specifically, Bitcoin has historically been an excellent diversifier from other traditional asset classes.”
Translation: Managed futures are frequently embraced by advisors and asset allocators as an avenue for boosting diversification in client portfolios. Bitcoin can accomplish that. The cryptocurrency is negatively correlated to the U.S. Dollar Index and major broad bond benchmarks, and it only sports slightly positive correlations to the S&P 500 and the Bloombeg Commodity Index. That’s relevant because some of the other futures contracts found in WTMF are derivatives of domestic equity benchmarks, the dollar, and currencies.
“We believe the low historical correlation between Bitcoin futures and other asset classes bodes well for enhancing the risk-adjusted return profile of a multi-asset fund like WTMF. We made significant modifications to WTMF in June 2021 with the goal of improving risk-adjusted return, and it would be worthwhile to examine the correlation between Bitcoin and the restructured Fund,” notes Aydemir.
Mission accomplished, because bitcoin is only modestly correlated to WTMF.
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